Everything You Need to Know to Understand Your Car Title

You know your car's title is important, but do you really understand why? Learn more about your car's title, how car titles can differ, and how this important document comes into play when you're buying or selling a vehicle.

The Purpose of a Car Title

A certificate of title for a vehicle (or car title) is an official document that indicates the legal owner of a vehicle. It is typically issued by your state's Department of Motor Vehicles (DMV). This document contains information about the owner and the vehicle, including the owner's name and address, the car's year, make, model, and the date on which the car was first sold. When the car is resold, the owner signs the title over to the buyer. The buyer uses this title to register the car in his or her own name. Besides serving as a legal document indicating ownership, a title can also tell you important information about the car's history, which is especially important if you're purchasing a used car.

Different Types of Titles

Every vehicle begins its life with a "clean title." Should a major event occur, though, like the vehicle is damaged in a flood, is stolen, or otherwise seriously damaged, the insurance company will file for a change in the vehicle's title. The goal is to record any major event for future reference. The name for various vehicle title types varies by state, but in general, most states recognize the following title classifications:

  • Clean Title: A vehicle with a clean title is your best bet if you're searching for a used car. A clean title indicates that the vehicle has never been in a major accident and never been declared "a total loss." This does not mean that it has never been involved in an accident—just that the accident was not significant enough to warrant a salvage title.

  • Clear Title: Some people use "clean title" and "clear title" interchangeably, but the two terms are very different. A clear title indicates that there is not a financial lien or levy against the car being sold. If an owner has a clear title, they are the sole undisputed owner and no creditors or other third parties can claim ownership.

  • Salvage Title: When a vehicle is involved in an accident, flood, fire, or other disastrous event and the total damage surpasses a certain percentage of the car's value, says Edmunds, an insurance company can decide that it is not economically feasible to repair it. Though the next steps vary by state, a motor vehicle agency will then issue a "salvage certificate" which means the car cannot be driven or sold in its current condition.
    A salvage title is a potential red flag if you're buying a used car. While the price tag may be exactly what you're looking for, the vehicle could be more prone to mechanical issues, have a lower resale value, or be difficult to insure.

  • Rebuilt/Reconstructed Title:After a salvage vehicle has been repaired, it's issued a rebuilt/reconstructed title. In general, the vehicle must be inspected by the state to ensure that the repairs are satisfactory before a rebuilt title can be issued. Though the car may appear to be "fixed," there's no real way to know how well the repairs were carried out says AutoTrader. Like a salvage title, a rebuilt or reconstructed title may make it difficult to get insurance, and if you do get the car insured, cheap car insurance may be out of reach.

"I can't find my car's title! What do I do?"

First, don't freak out! If your title is lost, stolen, or destroyed, you'll need to apply for a duplicate title. Otherwise, you won't be able to prove ownership, if need be, or sell your vehicle later on. Each state has a different process and price for replacing a title. Some states allow you to apply online, others require that you visit your County Clerk or DMV. You'll generally have to provide the following information though: the vehicle's VIN number, make, model, and year; the legal owner's name, address and driver's license number; and details on outstanding loans on the car.

Buying, Selling, & Your Car's Title

It's pretty common for drivers to finance their cars through banks or credit unions. In fact, around 85% of new car purchases and 54% of used car purchases were financed during the first half of 2014 reports Business Insider.

If you're still making payments on your car but would like to sell it, you'll need to invest a little time and legwork into the process. First, call your bank (if they're holding the title). Ask about any special steps or processes you'll need to follow in order to sell the car to a third party. This will help you determine how you're going to pay off the remaining note before selling the vehicle.

Once the loan has been paid in full, the title is "clear," says AutoTrader. You can take the title from the bank or let the bank know where to send the title. If the buyer is financing the vehicle, your bank will send the title to the buyer's bank.

If you think the only way to get a great deal on a used car is to buy one with a salvage or rebuilt title, think again. Consumer Reports publishes an annual list of the top used cars under $10,000, based on road tests and overall reliability. Call one of our friendly agents today if you have questions about buying a car and getting cheap insurance, or selling a car and changing your policy. Call 1-877-GO-DIRECT (1-877-463-4732) or stop by your nearest Direct Auto & Life location today!

Everything You Need to Know to Understand Your Car Title
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